“The way it works is this: the rich sell for $8, which means the poor buys for $8. Then when the stock price decreases to $6, the amateur sells it back to the rich, who of course now pays $6 for it back. Then when the stock price goes back to $8, the rich sell it to the poor again, which means the poor pays $8 again. Then when the price decreases back to $6, the amateur gets nervous again and sells it back to rich for $6.

Believe it or not, this happens all the time and is one of the many reasons why the rich get richer and the poor get poorer. This is one of the main reasons for the need for education in the fields of business and investing. In Proverbs 4:7, the Word of God states “ Wisdom is the principle thing; Therefore get wisdom. And in all your getting, get understanding”. The sad part is that amateur investors often have neither and think that God is speaking for his own health; But He’s not. He’s speaking for ours…”

When they have passive income much more than they need to spend, they start to have surplus of invest-able funds or Capital.

Having enough CAPITAL at bay, they can afford to wait for the right timing to buy cheaper. And they can afford another wait until the price reach higher than their buy costs. When the right time comes, they sell and take the profits.

On that process, they were able to increase their Capital and so they get richer. They then wait again for the next cycle to come to them. That’s Cool!

Very simple isn’t it? Indeed…. But!

It is the stage of having “Passive Income > Expenses” that is the most difficult part to achieve. A person wanting to be rich must first strive to get at that level and when he does, everything else will follow. Yes, easier said than done.

TIME, another important aspect. Experience and learning does not come overnight, it takes times to be learned and manifest as a character within.

“Some of the best lessons we ever learn are learned from past mistakes. The error of the past is the wisdom and success of the future.” Dale Turner

“Practical wisdom is only to be learned in the school of experience. Precepts and instruction are useful so far as they go, but, without the discipline of real life, they remain of the nature of theory only.” Samuel Smiles

“Wisdom and understanding can only become the possession of individual men by travelling the old road of observation, attention, perseverance, and industry.” S.S.

Being patient and persevering will work in favor of a person wanting to reach greater highs. Because as time passes by, plenty of learning experiences will be brought upon them. No one wanting to rise higher will be spared from trials and challenges, from temporary defeat and sufferings. Only those who persevere and kept on trying shall achieve WISDOM, to realize anything that they desired.

“Capital+Time+Wisdom”

That is the formula to get RICH, the TRUE RICHES that will be retained for long term and not the RICHES that easily comes and easily goes.

“Your work is going to fill a large part of your life, and the only way to be truly satisfied is to do what you believe is great work. And the only way to do great work is to love what you do,” he told the Stanford grads in 2005.

“If you haven’t found it yet, keep looking. Don’t settle. As with all matters of the heart, you’ll know when you find it. And, like any great relationship, it just gets better and better as the years roll on.”

One of the greatest privileges of my life was my friendship with Irwin T. Yamamoto who passed away two years ago today on July 15, 2009 at the age of 54.

Our friendship began eight years ago after I wrote something that discussed The Yamamoto Forecast and his excellent track record. Following that Irwin contacted me by email and our friendship flourished in all of the years that followed.

We would talk at least once per month about the market and I could always count on him offering a different perspective. In fact, in 2008 my wife and I traveled to Mauiwith the goal of meeting and spending time with the man who will always be known as “The Maui Contrarian.”

As with all great friendships, I learned a lot from Irwin and I’m better at what I do because of him. While our strategies were very different, it was also these differences that I believe also made us so interested in one another. They say that opposites attract and that you frequently learn from people who are the most unlike you. This was especially true with us. In my case, I really wanted to learn how Irwin was able to achieve the level of success he had for so many years and at the same time make it look so darn easy. What I ultimately discovered was a man who possessed simply all of the right characteristics, strategies, and the ideal mind set to succeed in the market over the long-term.

It is a tragedy that Irwin is no longer around to share and help investors around the world with his contrarian perspectives. This post is dedicated to Irwin’s memory and, to honor him, I would like to share some of the many lessons I learned in the sincere hope that it may benefit you as well.

Lessons From Irwin T. Yamamoto

Be a consistent contrarian: Being contrarian was Irwin’s nature. Whenever possible he took the unpopular view and found ways to make money from it. While some people love to think they are a contrarian as far as the market is concerned, when the heat is on and everyone (including the market itself) thinks you are dead wrong, they always run back to the herd. Irwin never did. Not once. No matter what. And, trust me, he was tested many times throughout his career.

Have courage: Every call Irwin made was a bold call. If it wasn’t bold, he simply didn’t make it. He refused to hedge his bets by trying to take the middle road or offering up so many contradicting opinions so he could later say he was right no matter what happened as so many experts do. To do well in the market, we all have to have the courage to make and stick with our convictions. Often the investment decisions that will work out the best are the ones that simply require the most courage to make.

Believe in yourself: Irwin had an unshakable belief in himself. That’s so very important when you have your hard-earned money in the market. Through thick and thin, Irwin always expected to win and he did more than most. Every winner I’ve met has possessed this important characteristic. However, what made Irwin truly special was that he also had the humility to keep his confidence in check.

Focus on quality not quantity: Irwin told me often that he was a happy man if he could just have one good opportunity in the market every year. Yes, that’s right – just one opportunity. In fact, subscribers to his newsletter will testify to the fact that Irwin rarely had more than just a handful of positions on at any given time and was not afraid to be in cash for extremely long periods when he found no excellent opportunities to share.

Patience: When taking the unpopular and contrarian view, Irwin understood that time was on his side. Although he would admit that it was “not easy to be alone in the crowd and swim continuously against the tide,” by maintaining a long-term perspective, Irwin was not tempted by the seduction of the short-term market swings. His focus was instead to concentrate on the big picture trends and profiting from them.

Ignore short-term noise: Irwin had the ability to ignore the short-term noise and concentrate on what really matters over the long haul. Yamamoto believed that the real-time coverage of the markets were severely detrimental to investors and he refused to watch the market during the day. Irwin told me that he would stay up late enough (Hawaiian time) to watch the premarket futures and premarket headlines, but then would go to bed once the market opened no matter what was going on. By doing this, the daily ups and downs didn’t phase him which is why he was able to be so consistent in his approach. In a day and age where everything is coming at us fast and in real-time, this was Yamamoto’s edge and he used it well.

Let your track record speak for itself: There’s a lot of puffery out there in the investment world as people try to sell newsletters, tips, advice and tools on the backs of people’s hopes and fears. Irwin never did. He simply did his job, produced the best results he could, and let the cards fall where they may. In both good times and bad, he never sought out public exposure or engaged in aggressive marketing techniques that is so very common today. Yamamoto was successful because he simply produced excellent results. He didn’t waste time creating hype or seeking attention by telling others how right he has been in the past. Instead his focus was on finding the next opportunity. Always.

Be in control of your destiny: Irwin understood both his strengths and weaknesses and created a business model that he loved. He started his newsletter back in 1977, found a format he liked (a typed newsletter usually no greater than a couple of pages sent out once per month) and he stuck with it all of those years. Although he was under pressure by his subscribers to make more frequent updates, go online, etc., he never did because he saw it as overkill and unhelpful to his clients. Say what you want, his outperformance among his peers over a long period of time shows he was ultimately right.

Know yourself: Irwin’s strategy was reflective of who he was and took advantage of his unique skills and personality. Irwin didn’t use indicators, sophisticated timing strategies or mess around with investments he didn’t know much about. Rest assure he never even considered daytrading stocks or adopting strategies of others that didn’t match his own personality. He knew who he was and aligned his strategy accordingly.

Be happy: The market and the performance of his investments never impacted his mood. In fact, some of the happiest conversations I had with Yamamoto was when he should have been the most frustrated and disappointed in his recent performance. When times were bad, he simply kept doing what he always had been doing and refused to let the market get the upper hand over his emotions. A skill many of us so desperately need.

Keep learning: Yamamoto was always in a learning mode and displayed a child-like enthusiasm for learning new things. It was my impression based on our conversations that he never felt like he knew everything or that there wasn’t so much more to learn. He was an avid reader and spent the vast majority of his free time reading and, more importantly, thinking about the market. Like many great students, Irwin sought out the ideas from people who he disagreed with the most so that he could “know his enemy.”

Think like a businessman: He told me often that he viewed himself as a businessman. A successful one “simply looks to purchase wholesale and sell retail.” His goal was to know the worth of a company and then acquire it below its true value. After finding an interesting opportunity, he would then scour the balance sheet and read all of the footnotes focusing primarily on the company’s cash position and relative cash flow. If those things looked good, he was especially encouraged if he saw insider buying. A simple, but effective strategy. To my knowledge, Irwin had only one stock screen in his toolbox – the new 52-week low list.

Play make believe: Irwin was insistent that most people shouldn’t be in the market until after they acquired the skills and strategies to consistently succeed. He often urged people to play “make believe” by mentally selecting a few stocks and tracking them for some time to see how they react to news and events. Only after doing that for long periods of time and after showing success should a person ever be in the market with their own money.

Don’t lose your values: We would often talk about how subscribers often wanted us to sway bullish or bearish, especially at the sentiment extremes. Like offering short sells after a major correction or buys after a rally, versus the exact opposite and how that often was the wrong approach. Irwin would often lose subscribers because of it, but he didn’t care. He stayed true to his own views through thick or thin even if it cost him money and lost subscription revenue.

In the end, it was a true honor to have Irwin Yamamoto as dear and loyal friend and so much wish he was still around so that we could discuss and debate the issues and opportunities that face the markets today!